Independent Russian gas producer Itera has said that it will invest as much as US$6bn by 2020 developing Block 21 offshore Turkmenistan, a company executive told Reuters on April 14. The move represents a major investment on the part of Itera in the development of Turkmenistan's offshore Caspian gas fields and is a further indication that Russian companies will continue to be an important source of investment in the country. However, the real prize for foreign oil companies in Turkmenistan remains access to the country's vast onshore gas reserves which, with the exception of a production sharing agreement (PSA) signed with state-owned China National Petroleum Corporation (CNPC) in 2007, have remained closed to outside investment.
Gennady Skidanov, an Itera executive, told Reuters that the company was planning to invest US$5-6bn from 2010 through to 2020 at its offshore Block 21 and that the initial exploration phase would cost US$300mn. The company signed a PSA to develop the block, which is located in the Turkmen section of the Caspian Sea, on September 13 2009. The agreement was seen as signalling an improvement in Russian-Turkmen energy relations following a dispute over an April 2009 pipeline explosion that resulted in the suspension of gas exports from Turkmenistan to Russia, which remains the main export market for Turkmen gas. Itera's latest announcement provides further confirmation that energy relations between the countries are continuing to improve and that Russian investment will continue to play an important role in the development of Turkmen oil and gas assets.
Itera has estimated reserves at Block 21 to be 1.17bn barrels (bbl) of oil and 60bn cubic metres (bcm) of gas and has said that preliminary estimates suggest the field could produce about 10bcm of gas per year and an average of 385,000 barrels per day (b/d) of oil. Skidanov added that the company was interested in developing a further three offshore blocks but that their status was unclear owing to their proximity to the Turkmenistan-Iran Caspian Sea border.
While Itera's investment indicates the commercial potential of Turkmenistan's offshore acreage, the much more significant attraction for foreign oil and gas companies in Turkmenistan is undoubtedly access to the country's massive onshore reserves. Indeed, the company itself likely views its investment as a means of establishing itself as a known upstream player in Turkmenistan in the event that the country decides to open its onshore fields to foreign players.
Highlighting the attractiveness of Turkmenistan's onshore reserves, the country's Oil & Gas Minister Bayramgeldy Nedirov told reporters on April 14 that reserves estimates for the South Yolotan-Osman gas field had been raised to 16trn cubic metres (tcm). Nedirov said that the increased reserve estimate was the result of further exploration drilling at the field. The revision puts reserve estimates above the high estimate made by UK-based international advisory firm Gaffney Cline & Associates (GCA) when it conducted the first independent assessment of the field in October 2008. GCA put the field's low reserves estimate at 4tcm, the best estimate at 6tcm and the high estimate at 14tcm. At 16tcm South Yolotan-Osman is by far the country's largest gas field and ranks among the world's top five gas fields. If these reserves are proven up as the South Yolotan-Osman is developed in the future it would represent significant upside to BMI's Turkmen gas reserve forecasts. At present we see Turkmenistan's 2008 proven gas reserves of 8tcm as a peak and forecast them to decline to 7.7tcm in 2015 and 7.11tcm by 2020.